Points to consider before you commit to an indexed universal life plan

IF YOU are in the market for an indexed universal life (IUL) plan, here are some things to consider. Since the policy value and commitment are large, it is important that to seek advice and revisit the plan periodically. If you are paying via a multi-pay mode, it is also important to ensure that you are able to consistently fund the premiums to prevent the policy from lapsing.

Be clear about your objectives

Havend chief executive Eddy Cheong said ULs and IULs help to create an estate in the event of death. “The payout is in the form of cash that can be easily distributed, unlike certain assets like properties and jewellery,” he said.

This is why such policies are used to equalise the distribution of an estate among heirs. The policies also help to provide stability to an estate as the death benefit can be determined, he added.

But IULs should not be regarded as stock market investments, said Capital for Life chief executive Carlton Crabbe. “They are designed to grow steadily while avoiding market crashes, not to deliver full equity market upside. The trade-off is intentional. Clients accept limits on gains in exchange for protection during downturns.”

Capital for Life is an independent international life insurance advisory firm specialising in high-value IUL insurance across multiple jurisdictions.

IULs also help to diversify a portfolio, Crabbe said. “Their value becomes most visible in difficult market periods, particularly when poor returns early on can derail long-term outcomes. By providing a source of growth and liquidity that is insulated from market losses, IULs can help reduce the impact of sequence-of-returns risk. Used properly, they act as a stabilising component within a broader financial plan, rather than a return-maximising asset.”

Ouling Lu, HSBC Life Singapore chief product propositions officer, noted that HNW clients typically prioritise wealth preservation and legacy planning, “often across multiple jurisdictions with a focus on structuring, predictability and long-term outcomes”.

“Mass affluent clients tend to focus on wealth accumulation, accessible growth, financial security and more straightforward planning solutions…”

Insurer’s financial strength

This is typically taken for granted in Singapore. But Crabbe said the insurer’s financial strength matters when policies are large. “Most leading IULs look similar on the surface, but the real differences only emerge during difficult market periods. We therefore focus on the financial strength of the insurer, how conservatively it manages risk and how it behaves under stress.

“In practice, clients are trusting an institution to honour long-term promises, often for the rest of their lives. So balance sheet strength and discipline matter far more than small differences in product features.”

Death benefit and the risks

There is typically no guarantee on the death benefit, and an annual mortality charge applies. The death benefit payout (net of any policy loan) is typically the sum assured of the policy or the account value on the insured’s death – whichever is larger.

Singlife offers a “centennial benefit”, where no cost of insurance is charged once life assured reaches age 100 (next birthday). “This helps support policy sustainability at centenarian ages,” said Singlife group head of products Helen Shen.

Manulife’s chief product officer Frank O’Neill said that as the policy’s cash value grows over time, “the net amount at risk typically reduces which can help lower the relative mortality charge”.

He added: “During periods of weaker or prolonged market performance, clients may need to top up premiums to maintain the policy and ensure continued coverage. The minimum crediting rate helps support policy sustainability even in challenging market conditions.”

Tan Wei Perng, Prudential head of product strategy and innovation, said sales materials highlight the possibility of “insufficient account value, particularly if markets perform unfavourably over a sustained period”.

Fees

Depending on the insurers, there is a range of fees, which you need to be aware of. These include a fixed policy or premium charge; a monthly policy expense charge; and admin and surrender charges, among others.

Crabbe said fees matter, “but they are rarely the reason IULs fail”.

“Most problems arise from unrealistic expectations, or clients failing to fund consistently and on time, rather than excessive charges. A policy that looks cheap on paper but collapses later is far more costly than one with slightly higher fees that is designed to last… We therefore focus on how a policy performs under stress, not just how attractive it appears in a standard illustration.

“Provided the policy includes a true-zero floor, meaning no negative years are credited, the risk of lapse under these designs is generally remote. If markets were flat or negative for decades, clients would likely be facing far bigger problems across their wider portfolios,” he said.